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Patrick J. O'Keefe Shares Expectations for April Jobs Report


5/4/15

by Patrick J. O'Keefe, Director of Economic Research

On Friday, May 8, the Bureau of Labor Statistics (BLS) will release data on labor market conditions in the United States through April 2015.

Forecast:

  • We expect the BLS to report that total nonfarm employment rose in April by 260,000 jobs, a gain in line with the average over the prior 12 months. The BLS is likely to report that April’s gain in average hourly earnings was $0.09 per hour, the best gain since November.
  • We anticipate that April’s data will show modest increases in key supply-side measures (viz., labor force participation, unemployment, and jobholders).
     

The accompanying charts display the most recent data for key labor market indicators.

Background – Employment [Charts 1-29] Friday’s data is expected to show that the current expansion added to its record 61 consecutive months of gains in private sector employment. Public sector jobs have declined modestly since the start of the year.

Although private employers have consistently increased payrolls since March 2010, they have reacted to the economy’s erratic growth by modulating the pace of hiring.

As economic growth strengthened for much of last year, so did hiring; 2014 had the largest jobs gain since 1999. But in late 2014, activity slowed and hiring decelerated. The average monthly increase over the past three months was the lowest since 2013.

While some of the factors beneath the slowdown were likely temporary (e.g., a labor dispute affecting imports; disruptive weather patterns), others persist (e.g., the dollar’s rise; global economic weakness). Inventory accumulation – domestically and globally –has also contributed to the hiring slow down.

But despite the recent deceleration, the jobs expansion remains on track. Indeed, during the quarter of 2015, the private sector added 2.4% more jobs than in 2014’s comparable period. Public sector employment also rose, albeit marginally (0.3%).

The April jobs gain should be bolstered by deferred hirings (e.g., positions that had gone unfilled due to weather) and diminished separations (as is evident in unemployment insurance filings, which are at a 15-year low).

Total nonfarm employment reached 141.2 million in March. Private payrolls (119.3 million) were 12.1 million (11.3%) higher than when the jobs recovery began. Public sector employment (21.9 million) was still 2.6% (578,000) less than when the labor market bottomed in February 2010.

Within the private sector’s gains:

Goods producers continue to languish, having regained less than half (44.4%) of the jobs shed during the contraction. Manufacturing employment is 1.4 million shy of its pre-contraction peak, construction jobs 1.1 million fewer. Two years of expanding extraction employment had partially offset those shortfalls, but recent petroleum-related cutbacks have eradicated more than one-third of those gains.

Private service providers have added 10.2 million jobs since the recovery began and total employment is 11.4% (5.7 million) above its pre-contraction peak. Almost two-thirds (62.6%) of those gains were in three industries: business services, leisure/hospitality, and healthcare.

Background – Labor Force  [Charts 30-41] The employment data discussed above are based on a survey of employers. A separate survey of households is the source of data on the labor market status of residents. A labor force participant is any non-institutionalized civilian, 16 years or older, who is either a jobholder or jobseeker (i.e., actively sought work in the prior four weeks). 

The labor force participation rate (LFPR) has been declining since early 2000 when the share of the work-age population having or seeking paid employment was 67.3%. 

From that peak, the LFPR drifted downward (declining more than 100 basis points through 2007) on shifting demographic trends. With the onset of the recession, the decline accelerated to a 36-year low (62.8%) and has hovered near there since. 

Retirement by Boomers is a factor in the LFPR’s decline, but drops among youth and prime-work-age adults are historically pronounced and have significant implications for the economy’s growth potential and the nation’s fiscal and monetary policies.

We expect April’s LFPR to rise to 62.9%, more than fully reversing the drop in the prior month and returning to where it stood in January.

With 15.4 million individuals looking for work in October 2009, the unemployment rate (i.e., jobseekers as a proportion of the labor force) reached 10.0%, for one month. (Since 1948, the rate had been above 10% only between September 1982 and June 1983, when it averaged 10.4% and encompassed 11.5 million jobseekers.)

In March, the number of jobseekers fell to 8.6 million; the unemployment rate was 5.5%. March saw the lowest count of jobseekers (down 1.2% from February) since mid-2008. The unemployment rate was unchanged over the month and, like the count of jobseekers, was the lowest it had been since mid-2008.

The number of unemployed most likely rose in April as new entrants into the labor force and the return of previously discouraged jobseekers added to the ranks of the counted unemployed.

As a result, April’s unemployment rate is expected to be reported as 5.6 percent, up marginally from the prior month.

While encouraging, the unemployment measures are flattered by the drop in labor force participation. If the LFPR was equivalent to the year prior to the recession (2007), the count of jobseekers would be 17.0 million; the unemployment rate 10.3%.

The number of jobholders (i.e., individuals with jobs) has increased steadily since the start of 2013 (up 24 of 27 months). As a consequence, the employment rate (i.e., the proportion of the work-age population with jobs) stands at 59.3%, the highest reading since mid-2009. 

The April data are expected to show that the number of jobholders increased for the 12th consecutive month, reaching a record 148.3 million.

But jobs growth has not kept pace with that of the work-age population. If March’s employment rate was equivalent to pre-recession levels (e.g., 2007’s), 9.2 million more Americans would have been employed.

March’s data also showed:

  • Underemployment rising modestly from February’s multi-year low;
  • Long-term unemployment declining to the lowest count since late 2008; and
  • Discouraged jobseekers(seasonally adjusted) rising from November’s cyclic low to its highest reading since February 2014.
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